Now, more than ever in the age of Covid 19, construction lending is complex and uncertain. But, as always, lenders who have learned from their mistakes and suffered battle scars along the way are even today willing to finance a project for a descent return.
The complexity of a global pandemic has added to an already uncertain timeline but lenders are still willing to bet on a property's success. Jonathan Roth, Co founder of 3650 REIT says ”the world changes quickly and as a lender you have to reassess and pivot”. He continues “We've seen this show before, it's not the same show this time round but there are always periods in the world of real estate where the music stops and you have to regroup”.
Pre pandemic commercial real estate lending was a borrower’s market. Post Covid 19, the tables have turned and lenders are now calling the shots. Shaunak Tanna, head of structured investments at Basis Investment Group says “more lenders are willing to consider deals compared with three months ago and pricing is a little more expensive in response to the market uncertainty”.
According to Morris Betesh, a senior managing director at Meridian Capital Group “lenders are willing to do construction loans, but they are focused on asset classes that have proved to be resilient during Covid 19. Anything else is challenging”. For example, as we have been describing in recent blogs the asset classes of Hotels and Retail are a challenge, but Multifamily rentals, Office buildings in the suburbs and Industrial properties are attractive to lenders.
For some lenders their focus has shifted to the suburbs, for example, Long Island as opposed to Brooklyn or Long Island City. As in person retail and hospitality declines, the red hot attractiveness of the industrial sector continues.
Lenders are protecting their downside by identifying each type of risk, then quantifying that risk and finding an appropriate mitigator for that risk or pit differently, proceeds, pricing and structure.
Jonathan Roth of 3650 REIT adds, “developers deserve to be rewarded with great riches. They have to conceive a project, acquire the underlying land and develop it”. That process can take years and years and the world changes, it doesn't stand still. There are plenty of opportunities for lenders. Morris Betesh adds “it's a better time than ever to be a construction lender”. Lenders must do what they do and do it well.
To be continued...
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